Seven ways to cut the cost of running your business
Business expenses continue to rise – but are you paying more than you need to? Brett Hay, a consultant with Expense Reduction Analysts, shares seven simple strategies that could help shave 10 percent or more off the everyday running costs of your business.
Want to pay less to run your business? Using this seven-step process could help cut your overall costs by 10-15 percent.
If you could reverse the trend of rising costs and pay less to run your business, would you? Brett Hay, a consultant with Expense Reduction Analysts, believes that most small business owners are overspending by as much as 20 percent.
“That’s the average amount we save for our clients,” he says. “But, even without professional help, you might be able to cut your overall costs by 10 to 15 percent.”
He recommends following this seven-step process.
1. Analyse your costs
Start out by pulling together an exhaustive and accurate list of your business costs.
2. Where possible, rationalise your purchases
If you have a number of offices or outlets, you might save by consolidating and centralising your purchases. A common Enterprise Resource Planning (ERP) or accounting system could help you to maintain optimum efficiency.
3. Benchmark your spending
How much are your competitors paying? Suppliers and industry associations can be useful sources of benchmarking information. “Very broadly, you could expect your telecommunications costs to be about two to three percent of sales,” says Hay. “IT should cost about $1,000 per employee per year and office supplies $400 per employee per year. If you’re paying more, there might be a good reason but you need to know for sure.”
4. Talk to your suppliers
Many businesses treat suppliers as the enemy, especially when it comes to cost cutting. But you’ll generally benefit more by working with them, not against them. “Ask if they can suggest ways for you to reduce your costs,” says Hay. “For example, if you could reduce your costs to them by making your purchases online or accepting online invoices, they may be prepared to pass these savings on to you.”
And while it’s important to maintain good relationships with your suppliers, they shouldn’t be so good that you feel uncomfortable putting their service to the test. “It makes sense to find out what the competition is offering, but talk to your current suppliers before making a switch,” says Hay. “They might be prepared to better it.”
5. Beware of buying in bulk
The savings may sound impressive when you buy big, but remember that you need to factor your cash outlay, storage and possible wastage into the cost. “Some products have a limited lifespan and your needs may change – for example, you might have to replace your printer before you’ve used the supply of the toner or ink you bought for the old one,” notes Hay.
6. Manage your people
The biggest cost for most businesses is staff. “The most cost-effective strategy is to minimise turnover, so you should take great care to employ the right people and do your best to retain them,” says Hay. But this doesn’t mean paying above the odds. Exit interviews suggest that fewer than 25 percent of people leave a job because they’re unhappy with their pay.
7. Monitor your success
Without continuous assessment, it’s easy to slip back into paying more than you need. Establish a system to monitor the success of all your cost-cutting strategies and give one person responsibility for the task. “Giving the project a name, or linking the savings to a specific capital investment, can help to create a culture of cost management within the organisation,” says Hay.
You may also be interested in: